[jeffkrol]

http://www.nber.org/public_html/confer/2010/MEf10/Guajardo_Leigh.pdf

How The IMF Got Its Keynesian Groove Back | The New Republic

In one memo, leaked to the press, a contemptuous Bundesbank economist even dubbed the IMF the “Inflation Maximizing Fund”. In November 2010, a second IMF paper managed to hit orthodoxy even harder. In the paper, titled “Will It Hurt? Macroeconomic Effects of Fiscal Consolidation” —the “it” in question was budgetary austerity—the IMF researchers showed empirically that fiscal contraction usually leads to GDP contraction. “That article exploded the expansionary fiscal consolidation myth,” claims Kirkegaard.

The subsequent course of events has proven the fund prescient. For instance, in April 2010, fund economists pushed for a more generous bail out of Greece, but ran into EU and ECB resistance. According to Boorman, the bail out would have looked “much different” if the IMF had been in total control. In the event, the fund could only warn its partners that their assumptions were wildly optimistic. Says Kirkegaard: “Empirically they’ve been proven right. What they said would happen in Greece, has happened. Austerity has made it harder to meet deficit targets.” And that boosted the fund’s credibility. When it came time to bail out Portugal and Ireland, the IMF had a much freer hand to set the bailout terms. “The IMF mission chiefs for Greece, Ireland, Portugal have serious intellectual firepower,” Boorman told me. “The fund has clearly been in the lead.”

[fisheye freak]

The problem with Keynsian thinking is that it is OK to get in to debt to stimulate the economy. The downside is that the virtuous cycle goes in to reverse when money is taken out of the economy to repay that debt. Needless to say, few governments are willing to pay back debt. Politically, voters love money being spent on them and politicians love the votes they can buy to get elected tomorrow. Eventually, the system either collapses under a sea of debt or money gets printed to inflate one's way out of the debt (or a default).This does not rebuild a shattered economy, it just paves the way to make those painful decisions. In the context of the current world system, it would not surprise me if the debt cancellation comes at the cost of UN appointed governance. At the end of the day, there are spenders and there are savers. Note JMK himself was not a good manager of money- he was a spender.

[Rondec]

Moderation is the key and politicians are never moderate unless they are forced to be.

[jeffkrol]

The problem with Keynsian thinking is that it is OK to get in to debt to stimulate the economy. The downside is that the virtuous cycle goes in to reverse when money is taken out of the economy to repay that debt.

There is never a need "pay" the debt. The only time money needs to be "taken out" is to slow or reverse inflation...

Ask yourself if you owed yourself billions and could print money do you actually "owe" yourself..........

The problem w/ "Keynsian thinking" is because of our err.. Checkbook thinking bias" most truly cannot comprehend the reality of fiat money ...

[les3547]

I think we aren't doing enough.

Zakaria: The real burden on the U.S. economy

Excerpts:

So the question we should all ask is: What would make this economy grow? What has stopped it from growing much over the last few years - indeed over much of the last decade?
One theory heard a lot these days is that the economy is burdened by excessive government regulation, interference and taxes. Cut them, the Republican candidates all say, and the economy will be unleashed.
It's a compelling picture, but the data simply do not support it.
The Organization for Economic Cooperation and Development (OECD) released a study last week measuring tax revenue as a percentage of GDP. Of the 30 countries studied, the United States came in 27th. Taxes are low in historical terms as well - the lowest since the early 1950s.

Or look at competitiveness. The World Bank publishes a report that looks at "Doing Business" across the globe. The U.S. ranks 4th in the world. The World Economic Forum does an annual ranking of overall economic competitiveness. The U.S. ranked fifth. In both these rankings, the countries that score higher are tiny places like Singapore and Finland, with populations often at 5% that of the United States.
And these rankings have not slipped much over the last decade. So where has there been change? Where have we slipped?

The answer is pretty clear. Only five years ago, American infrastructure used to be ranked in the top 10 by the World Economic Forum. Now we're 24th. U.S. air infrastructure has gone from 12th in the world to 31st - roads from eighth to 20th.
The drop in human capital is even greater than the drop in physical capital. The United States used to have the world's largest percentage of college graduates. We're now number 14, according to the most recent OECD data, and American students routinely rank toward the bottom of the developed world in international tests.

The situation in science education is more drastic. Even with the increase in college attendance over the past two decades, there were fewer engineering and engineering technologies graduates in 2009 (84,636) than in 1989 (85,002). Research and development spending has risen under Obama, but the basic trend has been downward for two decades. In percentage terms, the federal share of research spending - which funds basic science - is half of what it was in the 1950s.

In other words, the big shift in the United States over the past two decades is not a rise in regulations and taxation but a decline in investment - in physical and human capital. And investment is the crucial locomotive of long-term growth. In our interview, Michael Spence, the Nobel Prize-winning economist, pointed out that the United States got out of the Great Depression because of the spending associated with World War II but also because during the war, the U.S. dramatically reduced its consumption and expanded investments. People spent less; they saved more and bought war bonds. That surge in investment - by people and government - produced a generation of growth after the war.

If we want the next generation of growth, we need a similarly serious strategy of investment.

[Nesster]

I'm glad SOMEONE in the media is saying the right things.